Building Alliances for Corporate Social Responsibility

Abstract

Problem definition: When multiple companies share a social responsibility challenge, forming an industry alliance can help them pool resources and have greater influence. Companies, however, have the incentive to free ride. What mechanisms can avert free riding and drive companies to form an alliance for social responsibility?

Methodology/results: Motivated by industry practice, we model alliance formation as a two-stage public goods game among companies with different levels of brand value, endowment, or benefit from the public good, along with varying degrees of prosociality. One company can invite another to form an initial alliance before other companies decide to join. We find that the invitation mechanism is the key to success. We identify two behavioral drivers behind alliance formation: status seeking by low-type companies and prosociality of high-type companies driven by a moral responsibility to reciprocate initial contributions. We test the theory in incentivized laboratory experiments. The experiments confirm the essential role of invitation. It shows the initiator predominantly invites a high-type company---evidence of status seeking. Under heterogeneous endowment, prosociality drives a high-endowment company to invite a low-endowment company and persist to contribute even if the invitation is declined. Once an alliance is formed, under heterogeneous brand value or endowment, prosociality drives contribution by additional high-type companies but not low-type companies. In contrast, with heterogeneous benefit, the financial incentive crowds out the prosocial tendency.

Managerial implications: Establishing an early alliance is key. Companies should leverage status seeking and prosociality to form the alliance. Although companies may want to invite prominent peers, our results show that with strong prosociality, an initiating company may also benefit by inviting lower-profile companies. While prosociality often drives any subsequent contribution by a prominent company, with varying benefit from the alliance it becomes more effective to appeal to the financial benefit when soliciting contribution from additional companies that stand to gain more from the alliance.

Keywords: behavioral operations, social responsibility in supply chains, public goods games, status